Summary
holding that nonsolicitation covenant was overbroad when it did not limit purpose for which former employee could not solicit clients, prohibited former employee from selling unrelated items, and went beyond what was necessary to protect former employer's business interests
Summary of this case from Murphree v. Yancey Brothers Co.Opinion
A01A2279.
DECIDED: MARCH 6, 2002.
Employment contract; restrictive covenant. Oconee Superior Court. Before Judge Jones.
McArthur McArthur, John J. McArthur, for appellant.
Fortson, Bentley Griffin, John B. Parker, Roy E. Manoll III, for appellee.
This case involves the enforceability of restrictive covenants found in an employment agreement prohibiting the employee from performing certain services and from soliciting the company's clients for any purpose during a two-year period after termination and within a four-county area. The trial court upheld the covenants as enforceable. Since the nonsolicit covenant is unenforceable, the noncompete covenant is also unenforceable, requiring that we reverse.
Riddle does not challenge the covenant of no-hire.
Michael Riddle was an employee with Geo-Hydro Engineers, Inc. for more than ten years when in 1997 he entered into an employment agreement containing certain restrictive covenants. The post-employment covenants provided:
(a) For and during a period of two years commencing immediately following Termination, the Employee shall not within [a defined] Territory: (i) individually or for or on behalf of any other person engage, directly or indirectly, in the business of providing, performing or rendering [certain soil-testing] Services; (ii) directly or indirectly for himself or on behalf or in connection with any other person solicit, divert, or attempt to take away any of the clients of the Company with whom the Employee had Material Contact during the twelve (12) month period preceding Termination. . . .
In November 2000, Riddle left employment with Geo-Hydro and along with another former employee, started a business providing geotechnical and environmental engineering, and construction-materials testing services. In response to Geo-Hydro's complaint for injunctive relief alleging that Riddle was in violation of the restrictive covenants, Riddle counterclaimed for a declaratory judgment that the covenants were unenforceable. Riddle now appeals the trial court's ruling that the covenants were in fact reasonable and enforceable.
"A contract in general restraint of trade or which tends to lessen competition is against public policy and is void." (Footnote omitted.) Habif, Arogeti Wynne, P.C. v. Baggett, 231 Ga. App. 289, 292 (2) ( 498 S.E.2d 346) (1998). A restrictive covenant in an employment contract, whether a noncompete covenant or a nonsolicit covenant, is considered in partial restraint of trade and will be enforced if reasonable, founded on valuable consideration, reasonably necessary to protect the interest of the party in whose favor it is imposed, and if it does not unduly prejudice the interest of the public. Kuehn v. Selton Assoc., Inc., 242 Ga. App. 662, 663 (1) ( 530 S.E.2d 787) (2000); Sysco Food Svcs. of Atlanta, Inc. v. Chupp, 225 Ga. App. 584, 585 (1) ( 484 S.E.2d 323) (1997).
Whether the restraint imposed by the employment contract is reasonable is a question of law for determination by the court, which considers the nature and extent of the trade or business, the situation of the parties, and all the other circumstances. A three-element test of duration, territorial coverage, and scope of activity has evolved as a helpful tool in examining the reasonableness of the particular factual setting to which it is applied.
(Footnote and punctuation omitted.) Habif, supra, 231 Ga. App. at 292 (2).
"The first step in considering the enforceability of restrictive covenants is to determine the level of scrutiny to be applied." (Footnote omitted.) Advance Technology Consultants v. Roadtrac LLC, 250 Ga. App. 317, 319 (1) ( 551 S.E.2d 735) (2001). Covenants ancillary to an employment contract receive strict scrutiny and cannot be blue-penciled. Habif, supra, 231 Ga. App. at 289 (1).
We need only address the covenant not to solicit, which prohibits Riddle from soliciting any clients of Geo-Hydro with whom Riddle had "Material Contact" during the twelve months preceding his termination. This covenant is overbroad in that it does not limit the purpose for which Riddle may not solicit Geo-Hydro clients. "As this prohibits [Riddle] from contacting these clients to sell them unrelated products such as soap or banking products, the covenant clearly go[es] beyond what is necessary to protect [Geo-Hydro's] business interests." (Footnote omitted.) Roadtrac, supra, 250 Ga. App. at 322 (4). Accordingly, we hold that the nonsolicit covenant is overbroad and unenforceable.
Since the nonsolicit covenant is unenforceable, the noncompete covenant is also unenforceable, as Georgia does not employ the "blue-pencil" doctrine of severability to restrictive covenants in employment contracts. Roadtrac, supra, 250 Ga. App. at 320 (2). Thus, the court erred in finding Riddle's post-employment covenant not to compete and covenant not to solicit enforceable.
Judgment reversed. Andrews, P.J., and Eldridge, J., concur.
DECIDED MARCH 6, 2002.